LAS VEGAS (AdAge.com) -- The recession has squeezed consumers into giving up a lot of things -- but gadgets, TVs and smartphones have managed to remain essential, maybe more so than pants.
While the consumer electronics industry took a bruising in 2009, with sales down 7.8% from the prior year, it weathered this once-in-a-lifetime recession well compared to automotive, retail, apparel and other industries. And while it's facing another down year in 2010, according to the Consumer Electronics Association's new forecast, it's benefiting from a recent change in consumer behavior that has elevated the electronic device from something discretionary to must-have.
Consumers are showing that there are a lot of corners to cut -- such as packing a lunch for a few months, perhaps, or not buying a new suit -- before they'll decide not to upgrade to the next smartphone. Indeed, smart phones will take the lead as the industry's top category in 2010 with $17 billion in sales, its penetration having grown from 11% of the U.S. population to 17% in the past year, per Forrester Research.
This year CE sales will actually be up, slightly, from 2009 to $165 billion in sales, but still below 2008's high-water mark of nearly $179 billion. But if there's one thing the consumer-electronics industry has learned, it is to not underestimate consumer desire to adopt the next new thing -- even in a tough economy -- so manufacturers are once again betting they can fire up the dream factory and build devices consumers don't yet know they want, but will soon consider must-haves.That's why Sony Style stores are getting 3-D demonstration TVs in the coming weeks, even though it will be June before Sony says any mass-market 3-D TVs will be available for sale. Apple is titillating the market with its upcoming tablet computer, another device that solves the terrible problem of people who want (or need, really) something smaller and thinner than a netbook on which to watch or read their media.
What's happening? Much has been made of the "cocooning effect," or people rationalizing that they can spend a little more on a flat screen since they'll be going to the movies less. But some think it's gone a little deeper: Electronics have become more intrinsic, more of an extension of people's everyday activities. And it's all happened within the last few years.
"Technology is becoming more engrained in our daily lives," said Steve Koenig, director of industry analysis for the CEA. "There are other more discretionary items in the household budget, things that need financing, like a car or a new home."
"We are seeing something really big and I don't think people realize it yet," said Nancy Bhagat, VP-consumer marketing at Intel. "I think we would have seen a larger slowdown in purchases if this had happened before 2009, but because the use of these devices has become part of people's lifestyles, it's becoming a must-have.
When it comes to TVs, the CE industry actually shipped more units in 2009 than the year before, though at lower prices.
"There are products across a diverse range of prices and even in tough times people buy things to make themselves feel better," said Forrester analyst Charles Golvin.
Holding down prices means manufacturers are selling more units even if the dollars are flat. "In sales we will be slightly up in dollars and significantly up in units," said Sony Electronics CMO Mike Fasulo. But with new products in the pipeline such as 3-D Blu-ray players, PlayStation games, TVs and new categories such as Sony's "Dash," a table-top web browser, marketing spending is going up to 2007 levels, which, he said, "is aggressive."
Consumers have already been through a grueling -- and expensive -- series of TV upgrades from analog to HD TVs, from DVDs to Blu-ray, etc. But the industry is banking that it can start a new cycle this year in the form of 3-D TVs. The CEA is anticipating 4 million 3-D sets will be sold in 2010, even though most sets won't hit stores until at least mid-year.
Manufacturers are loathe to test their good fortune, and prices for the next upgrade of TVs will be only incrementally above the 2-D sets they replace, not at $5,000 or $10,000 like the first generation of HD flatscreens.
But 3-D has some hurdles and plenty of skeptics. "I think it is much more confusion than the HD TV upgrade with even less obvious payoff for consumers," said Josh Lovison of IPG's Emerging Media Lab, who believes that 3-D could be more easily achieved with a new generation of glasses, not a TV upgrade.